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Health plans are gearing up for product and premium
development for the 2018 benefit year. The uncertainty
surrounding the future of the Patient Protection and
Affordable Care Act (ACA) has complicated the strategic
decision-making process for 2018. Answers to questions such
as “What happens if the individual mandate goes away?”
and “Will cost-sharing reduction (CSR) funding continue?”
could significantly affect premiums. A number of legislative
and regulatory proposals designed to modify the ACA are
emerging, making it unclear which changes will occur and
even less clear when health plans will be required to react.
Issuers need to be ready and actively prepare to respond
quickly to the evolving marketplace.

Issuers should develop contingency plans to evaluate the possible
changes in the marketplace and identify the circumstances under
which action is necessary. In our discussions with issuers thus far,
much of the contingency planning comes down to a new “3 Rs” to
mitigate risk in the current environment:

Remain in the market

Refile in the summer if changes occur after products are
initially filed

Remove products from the market

In this paper, we use the framework of these new 3 Rs—remain,
refile, or remove—in order to lay the groundwork for successful
2018 contingency planning.

Recent proposals may affect
premium rates

Some of the changes that health plans should prepare for
include, but are not limited to:

Transitional plans continuing past December 31, 2017

Individual mandate exemptions potentially increasing

Risk adjustment program changes as described in the 2018
Benefit and Payment Parameters

A new Actuarial Value Calculator and associated benefit
parameters to meet its requirements from the Centers for
Medicare and Medicaid Services (CMS)

Revised age curve, including new categories under age 21 and
potential widening of the 3:1 limit

These changes, whether finalized or proposed, introduce a
number of potential impacts to be considered by issuers in
2018 product development and pricing. Some could affect
the range of compliant plan designs that can be offered, and
others may have an impact on consumer behavior and/or the
resulting morbidity in the ACA marketplace in 2018. All of
these items have the potential to create additional uncertainty
and require time to understand and address. Issuers have
three fundamental strategies at their disposal as they develop
products and premium rates for 2018.

Remain

It is plausible, even with the variety of regulatory proposals
being discussed, that the ACA could remain structurally
unchanged for the 2018 plan year. As long as changes made do
not affect the fundamental design of the ACA and are made
sufficiently in advance of initial filing, health plans should
anticipate the rate development and submission process
to resemble that of recent years. Under this status quo
scenario, health plans will need to produce the standard filing
forms, EDGE server submissions, and other items to ensure
compliance. The proposed Market Stabilization Rule was
followed two days later by a revised calendar with additional
time for premium development and qualified health plan
(QHP) certification, so the new administration is aware of
issuers’ concerns about timing.

On February 23, 2017, CMS released guidance confirming the
extension of transitional plans through calendar year 2018,
which will likely delay the introduction of these healthier
members to the single risk pool while reducing the uncertainty
surrounding marketplace morbidity for 2018 pricing.

In light of the January 20 executive order, one key consideration
is the potential for the administration to make hardship
exemptions easier to obtain, which would loosen the individual mandate.1 As a result of the executive order, the Internal
Revenue Service (IRS) delayed implementation of a check
that would have more strictly enforced the individual mandate
than in previous filing years.2 If the individual mandate were
removed or relaxed, then health plans would most likely
assume that healthier individuals will leave the market and
increase 2018 premiums accordingly.

Risk adjustment will continue to be a critical feature of the
ACA. The biggest change here is the new prescription drug
condition categories that will be added to the calculation
in 2018. Health plans must continue diligently capturing
appropriate codes to achieve their full risk score potential
and consider the impact the drug data will have on their risk
scores. It is possible the inclusion of prescription drug data will
mitigate differences between issuers in coding intensity.

Health plans will need to continue checking actuarial value
compliance using the 2018 CMS Actuarial Value Calculator
and change plan designs as needed. Based on limited testing
thus far, we are finding many 2017 plans will require changes to
maintain compliance. The proposed Market Stabilization Rule
introduces the potential for a modified AV de minimis range of
+2%/-4%, allowing for leaner plan designs at each metallic tier
level than in previous years, but maintaining the upper bound
on benefit richness in each tier. Issuers should proactively
evaluate whether they would modify plan designs under this
scenario and be prepared for the impact of such modifications
if the rule is finalized.

There are seven new age bands under age 21 being implemented
for 2018. It will be important for issuers to consider how this
affects both new business rates and renewal rate increases for
members under age 21. Legislation has been proposed to expand
the age curve from the current 3:1 slope, which could affect
rating for 2018.

Refile

Health issuers that file 2018 products should also plan for
potential refiling of 2018 premiums as some features of the ACA
could be changed after initial submission. Because each state has
unique rate filing deadlines, the timing of revision notifications
is important. Significant price-bearing changes made after
filing could require updating premiums. Timelines related to the proposed Market Stabilization Rule appear to indicate
we will know more in April, though this does not eliminate
future uncertainties, and in some cases could still be too late
to react appropriately for initial filing submissions. While
current political discussions appear focused on a longer-term
transition, there is still the possibility of full repeal of the entire
ACA for plan year 2018, which would require health issuers to
completely reset and refile premiums if they choose to stay in
the new market.3

When anticipating changes communicated after premiums are
submitted, health plans should outline a process to identify
the circumstances under which premium modifications will
be necessary. Health plans should proactively discuss with
state insurance departments whether refiling will be allowed
under these circumstances. In some instances, state insurance
departments have also allowed for the submission of multiple
sets of rates, contingent on the outcome of a potentially
significant change in the market.4 Issuers should consider
the estimated impact that potential changes would have on
premiums when developing their strategies. Ultimately, health
plans that want to stay in the market in 2018 need to develop
and file premiums according to the existing ACA structure
and deadlines, while equipping themselves with a contingency
plan that allows for swift premium revisions if warranted by
legislative or regulatory changes.

Remove

If regulatory changes destabilize the market in such a way that
continuing to offer ACA products becomes too much of a risk,
issuers may consider removing their products from the market.

This approach may be necessary if significant legislative
or regulatory changes occur after initial filing submissions.
If health plans are not allowed to refile premiums for
price-sensitive ACA revisions, they face the risk of being
underpriced. Issuers may then consider removing their
products from the exchange market, if applicable, or removing
products from the entire market.

A full repeal of the ACA at some point in the future without
clear direction for a replacement plan may also warrant removal
from the market. If a full repeal of the ACA occurs effective
beginning 2018, issuers may lack time for adequate pricing.

Under either of these scenarios, health plans should proactively
assess their risk tolerances so they are prepared to take action.
Health plans should proceed with caution when deciding to
remove themselves from a market and understand the potential legal consequences. Under existing regulations, exiting a
market requires notifying enrollees 180 days prior to the end
of coverage and comes with a ban on reentry for five years, so
health plans should discuss with state insurance departments
the required timing and ramifications of such a decision.

Keep in mind that issuers choosing to file 2018 exchange
products can wait until September 15, 2017, in deciding whether
to remove some of their products from a given state’s market
or to pull out of the exchange entirely. This allows issuers to
evaluate legislative changes for much of 2017 before making
final decisions regarding their 2018 market strategies. Issuers
who pull out of the exchange would still be required to make
products available under guaranteed issue regulations, but
would not be required to market these products. If the market
is particularly uncertain, this may be a method for issuers to
limit exposure while avoiding the penalties associated with full
withdrawal from the market.

What should health plans do next?

Though major changes may not take effect in time to impact
the 2018 benefit year, health plans should be attentive to
legislative and regulatory discussions and potential actions. A
critical component of proactive contingency planning is not
only deciding what action to take, but also when to take it.
Health plans need to decide whether continuing to offer ACA
products is in their best interests in light of the substance and
effective date of proposed reforms.

Issuers should be aware of applicable 2018 deadlines for the
states in which they are filing, especially as these timelines
can evolve. As these deadlines approach, issuers choosing to
remain will have to begin the pricing process assuming the
status quo of the ACA market. Delaying the pricing process
until more is known can avoid significant unnecessary work,
but may also create tight timelines under which to finalize
and submit premiums. Health plans should be prepared to
refile premiums if significant changes are made to the ACA
after a rate filing has been submitted. Exiting the exchange
or the market entirely can have significant immediate effects
as well as longer-term consequences and may introduce
additional costs if an issuer chooses to reenter the market in
the future.

During this time of uncertainty, health plans should consider
the staff and budget needed for each of the new 3 Rs: remain,
refile, and remove, keeping long-term strategic goals and
risk tolerance in mind. While the direction of the market is
uncertain now, health plans can proactively evaluate the risks
and rewards of various contingency plans in order to act swiftly
and confidently when the new market landscape becomes clear
in the future.

4There is some precedent for this. The 2016 rate filings in the individual
market faced uncertainty over the availability of premium tax credits in
states using the federal exchange, and many issuers filed dual sets of
premium rates addressing scenarios with and without premium tax credits.

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